Question
The Libris Publishing Company had revenues of $200 million this year and expects a 50% growth to $300 million next year. Costs and expenses other
The Libris Publishing Company had revenues of $200 million this year and expects a 50% growth to $300 million next year. Costs and expenses other than interest are forecast at $250 million. The firm currently has assets of $280 million and current liabilities of $40 million. Its debt to equity ratio is 3:1. (That is, capital is 75% debt and 25% equity.) It pays 12% interest on all of its debt and is subject to federal and state income taxes at a total effective rate of 43%.
Libris expects assets and current liabilities to grow at 40%, 10% less than the revenue growth rate. The company plans to pay dividends of $10 million next year.
What is the planned debt to equity ratio at the end of next year? Round the answer to 2 decimal places. : 1
Do these results indicate a problem?
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